Household debt-to-disposable-income ratio edges lower as income rises

The ratio of how much Canadians owe compared with how much they earn improved in the first quarter for the first time since steadily worsening through most of last year.

OTTAWA — The ratio of how much Canadians owe compared with how much they earn improved in the first quarter for the first time since steadily worsening through most of last year.

But economists said the improvement was tiny and would do little to change the Bank of Canada’s view that high household debt continues to be a key risk to the economy.

“Growth in personal disposable income can be quite volatile on a quarter-to-quarter basis, and the very slight decline in the ratio really looks more like a plateau than the beginning of a trend decline,” TD Bank economist Leslie Preston wrote in a note.

“Moreover, lower interest rates have led to Canada’s housing market heating up this spring, which will likely lead to an acceleration in debt growth in the second quarter.”

Statistics Canada said Friday that ratio of household debt to disposable income edged down 163.3 per cent for the first three months of the year from 163.6 per cent at the end of last year.

That means households owed about $1.63 in consumer credit, mortgage and non-mortgage loans for every dollar of disposable income.

The slight improvement came as disposable income growth outpaced borrowing by rising 0.9 per cent compared with 0.7 per cent for household credit market debt.

BMO senior economist Benjamin Reitzes said the size of the improvement in the ratio was a bit of a disappointment.

“The ratio fell in first quarter for the sixth consecutive year, but the average drop in the prior five years was 0.9 percentage points,” Reitzes said.

Low interest rates have made it easier for Canadians to borrow, contributing to the rise in debt in recent years. However, many have raised concerns about what will happen when interest rates and the cost of borrowing start to rise again.

The Bank of Canada listed household debt and the persistently overvalued real estate market as key vulnerabilities in its financial system review earlier this week.

Total household credit market debt reached $1.841 trillion at the end of the first quarter, up 0.7 per cent from the previous quarter. Consumer credit debt was $519.5 billion, while mortgage debt stood at $1.197 trillion.

However, even with the increase, data looking at the ability of Canadians to handle the debt improved with both the debt-to-asset and debt-to-net worth ratios lower.

Statistics Canada said household net worth rose 3.4 per cent in the first quarter, boosted by gains in real estate and financial assets such as mutual funds and pension assets.

Non-financial assets, primarily real estate, rose 1.2 per cent while net financial assets were up 6.2 per cent.

Household net worth rose 3.2 per cent to $241,800 per capita.

Just Posted

PHOTOS: Red Deer College Queens host third annual Pink in the Rink game

The RDC Queens picked up an extra special victory on home ice… Continue reading

PHOTOS: The Mustard Seed CEO speaks at Seeds of Hope Gala in Red Deer

The first-ever Seeds of Hope Gala was held at the Red Deer… Continue reading

PHOTO: Renewable Energy Fair at Red Deer College

The Renewable Energy Fair and Workshops event was held at Red Deer… Continue reading

Person airlifted to hospital after collision near Innisfail

One person was airlifted to hospital after a serious collision west of… Continue reading

WATCH: Make-A-Wish grants Star Wars loving teen’s wish

The Make-A-Wish Foundation granted Anakin Suerink’s wish in Red Deer Saturday afternoon

‘Stupid’ law preventing Canada’s re-engagement with Iran: retired envoy

OTTAWA — The real reason the Liberal government hasn’t been able to… Continue reading

Voters head to polls for BC municipal elections today

VANCOUVER — Voters in British Columbia will head to the polls today… Continue reading

All sharks tagged in N.S. expedition can now be tracked on Ocearch website

HALIFAX — All six of the sharks tagged in Nova Scotian waters… Continue reading

Memorial service for former PQ minister Lise Payette today in Montreal

MONTREAL — Mourners will gather to remember former Parti Quebecois cabinet minister… Continue reading

Immunotherapy scores a first win against some breast cancers

For the first time, one of the new immunotherapy drugs has shown… Continue reading

‘Mom I’m in trouble:’ Canadian, Brit face 10 years in jail for alleged graffiti

GRANDE PRAIRIE, Alta. — The mother of a Canadian who was arrested… Continue reading

Coyote on the prowl near Penhold

This coyote was out on the prowl in a field just west… Continue reading

Most Read